Drugstore operator Rite Aid Corporation (NYSE:RAD) stock got punished in reaction to its Q1 2021 earnings results which were not so bad. However, the fear of growth slowdown resulting from the reopening trend and the acceleration of COVID vaccinations putting the pandemic in the rearview mirror is the root of concern. Furthermore, the Amazon Pharmacy (NASDAQ:AMZN) rollout has been troubling for pharmacy benefits managers (PBM). Investors are overlooking the strides made during the pandemic to bolster its operating strategy moving forward. The convenience and brand awareness gained from the digital transformation towards an omnichannel approach has transformed Rite-Aid into a different company post-pandemic compared to pre-pandemic. The millions of COVID-19 vaccines and tests administered by the Company has been expected to have a “sticky” effect as consumers also return to the stores for their prescription needs, medical treatment, and shopping. The question of just how sticky this relationship with the loads of new potential customers has yet to play out. Investors seeking exposure into a lower-cost entry into the PBM space and drugstore segment can watch for opportunistic pullbacks in shares of Rite Aid as they get cheaper.
Q1 Fiscal 2022 Earnings Release
On June 24, 2021, Rite Aid released its fiscal first-quarter 2021 results for the quarter ending May 2021. The Company reported an earnings-per-share (EPS) profit of $0.38 excluding non-recurring items versus consensus analyst estimates for a profit of $0.22, an $0.16 beat. Revenues grew 2.2% year-over-year (YoY) to $6.16 billion, falling short of analyst estimates for $6.21 billion. The Company administered approximately 4.7 million COVID-19 vaccines and 766,000 COVID tests in the quarter.
Lowered Full-Year Fiscal 2022 Guidance
Rite Aid issued confusing and dramatically lower forward guidance for fiscal full-year 2022 with EPS ranging between (-$0.79) to (-$0.24) versus $0.80 consensus analyst estimates. Total revenues are expected to come in between $15.1 billion to $25.5 billion versus $24.66 billion analyst estimates. There is no more benefit from COVID-19 booster or for vaccination for children under 12. Acute scripts and front end OTC sales are expected below historical levels and it assumes there will be no more lockdowns. This caused a downgrade from JPMorgan Chase (NYSE:JPM) to Underweight with a price target of $12 from $21 the following day June 25, 2021.
Conference Call Takeaways
Rite Aid CEO, Heyward Donigan, set the tone:
“Elevating our digital experience continues to be a top priority for us. We enhanced our unified commerce experience with the gain-wide launch of our partnership with DoorDash, which is off to a fast start, and is already outperforming our initial expectations.”
The Company has provided over 6 million COVID-19 vaccinations and nearly 2.7 million COVID-19 tests so far and is now vaccinating the 12 and over population. The Company has remodeled 70% of its stores or 1,700 stores and opened 7 new flagship stores with a total of 10 flagship stores be opened this year. He continued:
“We know our target customer values product attributes like green, organic and better-for-you, and we’re working hard to stock our shelves in the products aligned to our whole health focus. In addition, our pharmacists are continuing to provide whole health support to our communities. Some examples include tip sheets and consultations on traditional and alternative remedies.”
He concluded:
“In terms of the current selling season, it’s presenting more opportunities than last year, but it’s still not as robust as pre-COVID 2018 and 2019. We anticipated an additional increase in opportunities in the next year’s selling season and the investments we’re making now and our focus on enhancing our product offerings will enable us to win our fair shares.”
RAD Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames enables a precise view of the playing field for RAD stock. The weekly rifle chart breakdown formed on the nasty earnings reaction as share collapsed for the past two-weeks. The weekly 5-period moving average (MA) support is falling at $19.11 with 15-period MA at $18.90. The weekly lower Bollinger Bands (BBs) overlap the $13.71 Fibonacci (fib) level.
The weekly market structure high (MSH) sell triggered under $22.96. The weekly stochastic crossed down off the 30-band as a weekly inverse pup breakdown starts to form. The daily rifle chart downtrend has the 5-period MA at $16.08 with the oversold daily stochastic attempting to coil off the 5-band. The daily market structure low (MSL) triggers above $16.34. The daily 15-period is nearing the $18.61 fib. Prudent investors can monitor for opportunistic pullback levels at the $15.18 fib, $14.53 fib, $13.71 fib, $12.24 fib, and the $10.52 fib. Upside trajectories range from the $18.61 fib up towards the $25.81 fib.